iii44

REPORT

Pharmacoeconomics: friend or foe?

M Drummond
...............................................................................................................................

Ann Rheum Dis 2006;65(Suppl III):iii44–iii47. doi: 10.1136/ard.2006.058602

builds on clinical assessments obtained from clinical trials.

The financial constraints faced by most health systems today
make it necessary for manufacturers of new, expensive drugs
to demonstrate value for money. This paper describes the
different types of economic evaluation; the increasing use of
these analysis in decision making; their application to new
drugs in the field of in rheumatoid arthritis; and the pros and
cons of pharmacoeconomics studies from the perspective of
the patients, the physicians, and the general population.
Sometimes economic evaluations are conducted alongside, or
concurrently with, a given clinical trial. These are called trial
based studies. However, economic evaluations are often
undertaken based on a synthesis of data from a range of
sources. If, in addition, they make use of decision-analytic or
epidemiological models, they are called modelling studies. An
important methodological feature of these studies is whether
the assessments of clinical efficacy used in the model come
from a systematic review of the relevant clinical literature. If
the clinical data used in the economic evaluation do not
accurately reflect the clinical evidence as a whole, the results

G
iven the limitations on healthcare resources, there is of the economic study may be biased. Finally, the considera-
increased interest in assessing the value for money, or tion of costs in figure 1 was restricted to healthcare costs.
economic efficiency, of healthcare treatments and However, some economic evaluations adopt a broader,
programmes. This is achieved through economic evaluation, in societal, perspective and consider costs falling on other
which the costs and consequences of alternative treatment government budgets, the patient and their family, or the
strategies are compared.1 When economic evaluation is broader economy, through patients or their carers being able
applied to pharmaceuticals, such studies often go under the to return to work if the treatment is sufficiently successful.
term ‘‘pharmacoeconomics’’. This article describes the basic
In situations where the two treatment options being
forms of economic evaluation, outlines the increasing formal
considered are identical from a clinical perspective (for
requirement for such studies; discusses their application to
example, a comparison of a generic drug with a branded
new drugs in the field of rheumatoid arthritis; and assesses
version of the same compound), the economic evaluation
whether, on balance, the increased interest in economic
reduces to a comparison of costs only. However, such
analysis is favourable or unfavourable to patients, their
instances are quite rare and usually the difference in costs
physicians, and society at large.
needs to be compared with an appropriate measure of the
difference in consequences.
WHAT IS PHARMACOECONOMICS?
There are three main forms of economic evaluation. In the
The basic components of economic evaluation are shown in
first form, cost-effectiveness analysis (CEA), the consequences
figure 1. In this example a new drug is being compared with
are measured in the most obvious natural units of effects. The
existing practice, which could be an older drug, a non-
choice of units of measurement depends on the clinical field
pharmacological intervention or, in the case of a ‘‘break-
through’’ drug, no active therapy. being studied. For example, in life-saving therapy, such as
In considering the costs and consequences, the two treatments for chronic renal failure, the most appropriate
treatments themselves will have acquisition costs, but the effectiveness measure would be years of life gained. On the
economic costs and consequences will be much broader. For other hand, in a field such as asthma, the most appropriate
example, if the new drug is more efficacious than current measure may be ‘‘asthma-free days’’ or ‘‘symptom-free
therapy, there may be savings in other healthcare costs, such days’’. However, such studies leave us with important issues
as hospitalisations. Alternatively, if the new drug has a better of interpretation. For example, if one drug is superior in some
side effect profile, fewer drugs and procedures will be measures of outcome and inferior in others, how would one
consumed in dealing with adverse events. outcome be valued relative to another? One way around this
As the comparison of treatments, in an economic evalua- would be to turn the problem back to the decision maker by
tion, requires data on efficacy, the economic study usually just presenting the range of different consequences and
asking him or her to give an overall assessment. (Such
studies are sometimes called cost-consequences analyses.)
Drug Impact on health status (1) Survival Alternatively, the various consequences could be combined
therapy (2) QoL in a single generic measure of health improvement. In
(1) Hospitalisations another form of evaluation, cost-utility analysis (CUA), states
Impact on healthcare costs (2) Other drugs
Target (3) Procedures, etc.
of health are valued relative to one another through the use
patient of health state preference values or health utilities. Then the
group superiority of one treatment over another can be expressed in
Impact on health status (1) Survival
(2) QoL terms of the quality adjusted life years (QALYs) gained (see
(1) Hospitalisations fig 2). The use of a generic measure of outcome, such as the
Alternative
therapy Impact on healthcare costs (2) Other drugs
(3) Procedures, etc. Abbreviations: CBA, cost-benefit analysis; CEA, cost-effectiveness
analysis; CUA, cost-utility analysis; PABC, Pharmaceutical Benefits
Figure 1 Basic components of economic evaluation. QoL, quality of Advisory Committee; QALY, quality adjusted life year; TNF, tumour
life. necrosis factor

www.annrheumdis.com
Pharmacoeconomics: friend or foe?
QALY, enables us to compare the value for money of
interventions in different fields of health care. The concept
of the QALY is also quite useful when changes in quality of
life are being traded with changes in survival. For example, a
new cancer drug may be more toxic than existing therapy,
thereby reducing the patient’s quality of life during treat-
ment, but may produce gains in additional survival.
Finally, in a cost-benefit analysis (CBA), the various
consequences may be valued, relative to one another, in
monetary terms. In principle, CBA is the broadest form of
economic evaluation, since all costs and consequences are
expressed in the same unit (that is, money). Therefore we can
assess whether the total costs of an intervention are justified
by its total benefits. This contrasts with CEA and CUA, where
the assessment of value for money requires some judgement
of what the unit of benefit (for example, a life year or QALY)
is worth to society.
WHO IS ASKING FOR PHARMACOECONOMICS
STUDIES?
Australia was the first jurisdiction to use pharmacoeconomics
studies as part of decision making processes for new drugs.
Since 1993, economic analysis has been a requirement
in the information submitted by manufacturers to the
Pharmaceutical Benefits Advisory Committee (PBAC), the
body that advises ministers on whether new drugs go on
the national formulary, the Pharmaceutical Benefits
Schedule (PBS). Listing on the PBS ensures that the drug
will be reimbursed in the Australian healthcare system.2
Following Australia’s lead, several other jurisdictions,
including Canada, New Zealand, Norway, Finland, Sweden,
Perfect
(2) With
health 1.0 programme
A
QU
Health related
A In jurisdictions where pharmacoeconomics studies are
quality of life
LITY B
AD
(weights)
JUS
(1) Without TED
program
programme
LIFE
YEA
RS
Dead 0.0
Intervention Death 1 Death 2
Duration (Years)
Figure 2 Quality adjusted life years (QALYs) gained from an
intervention. In the conventional approach to QALYs the quality-
adjustment weight for each health state is multiplied by the time in the
state and then summed to calculate the number of QALYs. The
advantage of the QALY as a measure of health output is that it can
simultaneously capture gains from reduced morbidity (quality gains) and
reduced mortality (quantity gains), and integrate these into a single
measure. A simple example is displayed in the figure, in which outcomes
are assumed to occur with certainty. Without the health intervention an
individual’s health-related quality of life would deteriorate according to
the lower curve and the individual would die at time Death 1. With the
health intervention the individual would deteriorate more slowly, live
longer, and die at time Death 2. The area between the two curves is the
number of QALYs gained by the intervention. For instruction purposes
the area can be divided into two parts, A and B, as shown. Then part A
is the amount of QALY gained due to quality improvements (that is, the
quality gain during the time that the person would have otherwise been
alive anyhow), and part B is the amount of QALY gained due to quantity
improvements (that is, the amount of life extension, but adjusted by the
quality of that life extension). Redrawn from Drummond MF, et al.
Oxford: Oxford University Press, 2005, with permission.1
iii45
and Scotland (in the UK) request economic data as part of
their formal decision making procedures for new drugs. In
these jurisdictions all drugs, or all drugs used outside public
hospitals, are included and in most cases the decision relates
to reimbursement, as in Australia. In Scotland all drugs with
a licence are reimbursed, but the Scottish medicines
consortium issues guidance on their use under the National
Health Service (NHS). In some cases the guidance is against
use of the drug at all, or for restricted use, for a range of
indications narrower than those mentioned in the licence.
In several other jurisdictions, including England, Germany,
Hungary, the Netherlands, and Portugal, pharmacoeco-
nomics studies are used, but only for selected new drugs.
For example, in the Netherlands, a pharmacoeconomics
study is requested only in situations where the manufacturer
argues that the drug should not be clustered with existing
drugs under the reference pricing scheme. (Under reference
pricing, all drugs in the same cluster are given the same level
of reimbursement, so if the manufacturer sets a premium
price this results in a higher level of co-payment by the
patient.)
Alternatively in England, the National Institute for Health
and Clinical Excellence (NICE) only requests an economic
study if the new drug is likely to have a major impact on the
NHS, either because it represents a ‘‘breakthrough’’ in
therapy, or because it has a much higher acquisition cost
than existing medications for a given medical condition.
Whether it is better to have a comprehensive or selective use
of economic analysis is still a matter of debate.3
Finally, in several jurisdictions pharmacoeconomics ana-
lyses are not formally required, but are used by manufac-
turers and decision makers on a voluntary basis. For
example, in the USA, if managed care groups request
economic data, these can be supplied by manufacturers
according to a format devised by the Academy of Managed
Care Pharmacy.4 Voluntary use of economic analysis also
takes place in Denmark, France, and Italy. Whether there will
ever be a formal requirement in these jurisdictions is
currently uncertain, but the general trend is for more
jurisdictions to use economic analysis rather than fewer.5
formally required, the authorities usually issue a specifica-
tion, or set of guidelines, for the submission of data. The
existing published guidelines are broadly similar, but do
differ in the detail.6 A good example of a recent set of
guidelines is the ‘‘reference case’’ developed by NICE in the
UK.7 This gives advice on the therapeutic strategies to be
confirmed, the perspective for costing, the measurement and
valuation of health outcomes, and the characterisation of
uncertainty. There have also been attempts by researchers to
standardise economic evaluation methods. In the field of
musculoskeletal diseases, the organisation for measurement
in rheumatology clinical trials (Outcome Measures in
Rheumatology (OMERACT)) has developed a reference case
for economic studies in rheumatoid arthritis.8 The advantage
of following the reference case, where one exists, is that the
results of different studies can be more reliably compared.
However, since the adoption of the OMERACT reference case
is entirely voluntary, the uptake has been variable. Other
studies show that even when guidelines for economic
evaluation are prescribed by decision makers, they are not
always followed.9
The other major issue arising from the formal use of
pharmacoeconomics is that of deciding on what constitutes
good value for money. More specifically, do decision makers
have a threshold value, or maximum willingness-to-pay, for a
unit of health improvement (such as a QALY)? In the UK,
decision makers from NICE have suggested that the
important range for decision making is in the region of
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iii46 Drummond

£20 000–30 000 per QALY.10 This has been confirmed by set by NICE and other reimbursement bodies. Bansback et al14
empirical studies of decisions made by NICE.11 produced cost-effectiveness estimates for three different
Table 1 shows the results of one such empirical study of 26 antitumour necrosis factor (TNF) drugs in Sweden and,
decisions on new drugs, made by the PBAC in Australia.12 It whereas these differed slightly, they were all around, or
can be seen that if the incremental cost per life year gained is below, the threshold of J50 000 per QALY. This suggests that
less than AUS $40 000, the Committee’s decision is highly in many jurisdictions, the cost effectiveness of the anti-TNFs
likely to be positive, whereas above AUS $80 000 it is highly for rheumatoid arthritis is close to the limits of what decision
likely to be negative (for example, rejection or list only if the makers are willing to pay.
manufacturer is willing to lower the price of the new drug). In a paper comparing several economic models of infliximab,
The other interesting point about table 1 is that while the Drummond et al15 point out that the estimates produced are very
PBAC decision is largely related to the incremental cost- sensitive to the assumptions made. Particularly important
effectiveness ratio, there are several outliers. Several possible assumptions are those about the position of the anti-TNF in
explanations have been offered for this. Firstly, although the the sequence of therapies, the maintenance of clinical effects in
results in table 1 are presented as point estimates, there may the long term and the implications, for the patient, of
be differing amounts of uncertainty associated with each of withdrawal from therapy. These methodological uncertainties
the estimates. Secondly, the Committee may be more likely to make it difficult to compare the results of economic studies
recommend listing if the drug concerned is the only therapy assessing different drugs. They also emphasise that the
available for a given group of patients, or if their health reliability of cost-effectiveness estimates could be greatly
condition is very serious. Thirdly, the Committee may be improved by the use of long term data on clinical efficacy.
more likely to list if, in the absence of listing, the cost falling These data could come from trials, or more likely from
on patient is very high. Finally, the Committee may be less observational studies such as the UK biologicals registry.
likely to list if, despite a favourable cost-effectiveness ratio, Data are now beginning to emerge on the cost-effective-
the overall budgetary impact is likely to be large (because of ness of anti-TNFs in other indications. For example, Kobelt et
the size of the patient population) or if the drug is for a al16 found that infliximab for the treatment of ankylosing
disease partly determined by lifestyle (for example, obesity). spondylitis in the UK was £35 400 per QALY if a societal
perspective was considered and £73 000 per QALY if only
healthcare costs were included. However, the results varied
HOW DO THE NEWER DRUGS FARE IN
widely depending upon the assumptions made.
PHARMACOECONOMICS STUDIES?
The anti-TNFs have been widely studied from an economic
perspective, both in rheumatoid arthritis and other indica- PHARMACOECONOMICS: FRIEND OR FOE?
tions. For example, in a CUA based on the ATTRACT study, There’s no doubt that pharmacoeconomics represents
Kobelt et al13 found that infliximab had an incremental cost another obstacle to the availability of new medicines. In
per QALY of £34 800 for two years’ treatment, or £29 900 per jurisdictions using pharmacoeconomics, once a drug obtains
QALY if productivity gains were included. This result is close a licence, or approval to market, a dossier must be submitted
to the threshold, of around £30 000 (or J55 000) per QALY, to a separate committee that will decide on reimbursement.
Indeed, this process is often referred to as the ‘‘fourth
hurdle’’, as cost effectiveness is being added to the three
Table 1 Incremental cost per additional life year traditional criteria for licensing: efficacy, safety, and quality
gained—league table of manufacture. Often the indications for reimbursement, or
Incremental cost per additional guidance for use, will be narrower than the licensed
life year gained at 1998/1999 indications. For example, in England and Wales, NICE ruled
No. prices (AUS$) PBAC decision that cyclo-oxygenase-2 selective inhibitors should not be used
1 5 517 Recommended at price routinely in patients with rheumatoid or osteoarthritis, but
2 8 374 Recommended at price should be reserved for those patients who are at high risk of
3 8 740 Recommended at price developing serious gastrointestinal adverse effects.17
4 17 387 Recommended at price In the case of anti-TNFs for rheumatoid arthritis, the
5 18 762 Recommended at price
6 18 983 Recommended at price restrictions imposed usually relate to the position, in the
7 19 807 Recommended at lower price sequence of therapies, that the drugs are used. For example,
8 22 255 Recommended at price it is quite common to see a requirement that, prior to the use
9 26 800 Recommended at price of an anti-TNF, the patient should have previously failed two
10 38 237 Recommended at price
11 39 821 Recommended at price
disease modifying antirheumatic drugs, including metho-
12 42 697 Reject trexate. However, in most cases the restrictions on reimbur-
13 43 550 Reject sement tend to reflect the clinical evidence on the drugs
14 43 550 Defer concerned, which initially related to patients on methotrex-
15 43 550 Recommended at price
16 56 175 Reject
ate who still have active disease. As more becomes known
17 57 901 Recommended at price about the efficacy of anti-TNFs in early disease, it will be
18 63 703 Reject interesting to see whether the restrictions on reimbursement
19 71 582 Recommended at price are relaxed.
20 75 286 Recommended at price
21 85 385 Recommended at lower price
Although the anti-TNFs are reimbursed in most jurisdic-
22 88 865 Reject tions for rheumatoid arthritis, albeit with restrictions, they
23 98 323 Reject are not universally reimbursed in other indications, such as
24 229 064 Recommended at lower price Crohn’s disease, psoriatic arthritis, and psoriasis. To the
25 231 650 Reject
extent to which such decisions have been influenced by the
26 256 950 Reject
economic evidence, pharmacoeconomics could be said to
AUS$, Australian dollars. The average interbank exchange rate to US have contributed to the non-availability of some medicines
dollars for 1998/1999 was 0.63772 (range 0.68760 to 0.54850). for some patients. It may also contribute to the lack of
PBAC, Pharmaceutical Benefits Advisory Committee. medicines in the future, to the extent that funds for research
Published with permission from George B, et al. Pharmacoeconomics
2001; 19: 1103–9.
12 and development are limited by the lower income to
companies from the sales of anti-TNFs.

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Pharmacoeconomics: friend or foe?
On the other hand, the requirement to undertake
pharmacoeconomics studies at least gives manufacturers
the opportunity to demonstrate the cost effectiveness of their
products. It is worth noting that many of those jurisdictions
currently using pharmacoeconomics have always imposed
some limitations on the reimbursement of new medicines. It
is by no means certain that the use of pharmacoeconomics
makes these restrictions tougher. In addition, even in
jurisdictions with no apparent restrictions on the availability
of new medicines, covert rationing takes place because of
financial considerations. In the UK this is called ‘‘postcode
rationing’’ as patients in one location can gain access to
expensive new drugs whereas in another they cannot,
because of the view decision makers take on the budgetary
impact. Indeed, in the UK the existence of postcode rationing
was one of the prime motivations for establishing NICE,
although the Institute has not been totally successful in
eliminating it.
An alternative view of pharmacoeconomics is that, rather
than limiting expenditure on drugs, it directs funds to those
patients who will benefit the most from new medications. It
is generally true that, on an aggregate level, expenditure on
drugs is not falling in the richest European countries.18
Therefore, in a world where reimbursement is driven by
value for money considerations, the successful manufacturers
will be those who focus on developing products that are cost
effective in a wide range of indications and patients. Indeed,
value for money considerations should be one of the main
factors driving the drug development process. Such a shift in
research priorities, rather than being a bad thing, could be
beneficial to patients, their physicians, and society at large.
CONCLUSIONS
Therefore, depending on one’s perspective on the issues
raised above, pharmacoeconomics could be considered to be
both a friend and a foe. However, the trend appears to be that
more jurisdictions, rather than fewer, are using economic
analysis as part of their decision making procedures. Thus, it
is important that those developing, or seeking to use,
expensive new medicines understand pharmacoeconomics
methods and how these can be used to demonstrate value for
money.
Competing interests: none declared
iii47
Correspondence to: Professor M F Drummond, Centre for Health
Economics, Alcuin ‘‘A’’ Block, University of York, Heslington, York YO10
5DD, UK; md18@york.ac.uk
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